Showdown on debt limit sparks debate on trillion-dollar coin

President unlikely to mint currency or use 14th Amendment

Jan 13, 2013 @ 12:01 am

By
Bloomberg News

The looming showdown between President Barack Obama and congressional Republicans over raising the $16.4 trillion federal debt limit has made alternatives such as minting a trillion-dollar coin or invoking a constitutional amendment to pay the bills part of the political debate.

So far, the Obama administration isn't participating.

The proposal for the Treasury Department to mint a platinum coin worth $1 trillion and deposit it at the Federal Reserve to give the U.S. enough money to pay its debts has been advanced by, among others, Rep. Jerrold Nadler, D-N.Y., and the economist, Nobel laureate and New York Times columnist Paul Krugman.

But Rep. Greg Walden, R-Ore., said that he would introduce legislation to block any such move.

The ideas underscore growing unease in Washington as the United States reaches the debt limit and Mr. Obama and the Republicans move closer to a confrontation over increasing it.

OBAMA WON'T NEGOTIATE

Republicans are demanding spending cuts in exchange for raising the limit, while the president insists that he won't negotiate on the issue.

“A trillion-dollar currency is ridiculous,” said Chris Krueger, a senior policy analyst at Guggenheim Securities LLC. “This is not something that a first-rate power should even consider.”

Mr. Krueger's Dec. 5 research note helped spur interest in the idea by mentioning such coins as a “theoretical” option, while calling it “very low probability.”

Proponents contend that the Commemorative Coin Authorization and Reform Act of 1995 allows the government to issue a platinum coin in any denomination it chooses.

The law says that the Treasury secretary is authorized to “mint and issue platinum coins in such quantity and of such variety as the secretary determines to be appropriate.”

Mr. Krugman wrote in his New York Times blog that Mr. Obama should be willing to mint a $1 trillion coin “if Republicans try to force America into default.”

Mr. Obama will “be faced with a choice between two alternatives: one that's silly but benign, the other that's equally silly but both vile and disastrous,” he wrote.

“The decision should be obvious,” Mr. Krugman wrote.

PAY THE BILLS

The Treasury will run out of funds to pay its bills between Feb. 15 and March 1, the Bipartisan Policy Center wrote in a report last Monday.

The Constitution's 14th Amendment says that the validity of the public debt of the United States “shall not be questioned.”

The White House has dismissed the idea of invoking the amendment.

“This administration does not believe that the 14th Amendment gives the president the power to ignore the debt ceiling, period,” White House press secretary Jay Carney told reporters Dec. 6.

The Obama administration's “overwhelming preference” would be to avoid invoking the 14th Amendment or minting a coin, said Stan Collender, a former aide to the House and Senate budget committees who is a partner at Qorvis Communications LLC. “But faced with an alternative of spending cuts they don't think are wise or would be harmful to the economy, and Republicans refusing to raise the debt ceiling, if pushed into that kind of situation, I think the president might very well do it.”

Standard & Poor's lowered the U.S. credit rating in August 2011 after months of debate between Mr. Obama and congressional Republicans over raising the limit. Although the impasse ended and the president signed a debt ceiling increase, S&P downgraded the U.S. credit, citing political gridlock in Washington and long-term fiscal challenges.